Atlas Cycles (Haryana) Ltd. & Ors vs Vikram Kapur & Ors

(Arising out of Order dated 14th February, 2019 passed by the National Company Law Tribunal, Principal Bench, New Delhi, in C.P. No. 18(ND)/2015)

IN THE MATTER OF:

M/s. Atlas Cycles (Haryana) Ltd. & Ors. ...Appellants

Vs

Mr. Vikram Kapur & Ors. ....Respondents

Present:

For Appellants: Mr. Sudhir K. Makkar, Senior Advocate with Ms. Saumya Gupta, Advocate.

For Respondents: Dr. U.K. Chaudhary, Senior Advocate with Ms. Manisha Chaudhary, Ms. Samridhi Gogia, Mr. Sumit Malhotra and Mr. Dhruv Gupta, Advocates for R-1 & R-2.

Ms. Meenakshi Singh and Mr. Abhishek Choudhary, Advocates for R-5 to R-13

J U D G M E N T

SUDHANSU JYOTI MUKHOPADHAYA, J.

1st & 2nd Respondents Mr. Vikram Kapur and Mr. Angad Kapur filed

application before erstwhile Company Law Board in February, 2015 being

C.P No. 18 (ND)/ 2015 inter alia seeking demerger of the 'Sonepat Unit' in

light of the 'Memorandum of Understanding' ('MoU') dated 31st August,

2003 and the 'Arbitral Award' dated 1st November, 2014. The petition, on

constitution of the National Company Law Tribunal ('Tribunal' for short),

was transferred to the Principal Bench, New Delhi. 2

2. In the said petition, an application under Rule 11 of the 'National

Company Law Tribunal Rules, 2016' was filed by Applicants ('Appellants'

herein- 1st, 12th & 14th to 16th Respondents in the petition) with prayer to

grant permission to the Appellant Company- 'M/s. Atlas Cycles (Haryana)

Ltd.' to approach the consortium banks for release of title deeds in respect

of non-core assets under the charge of 'Sonepat Unit' so as to proceed with

its sale in accordance with the resolutions passed by the Board.

3. Before the Tribunal, the petitioners ('1st & 2nd Respondents' herein)

brought attention that the resolution passed by the Board of Directors on

14th December, 2017 is under challenge in C.A. No. 179(PB)/ 2018. The

said application was disposed of on 2nd August, 2018 and the Respondents

('Appellants' herein) were restrained from giving effect to the resolutions

dated 14th December, 2017 and 24th February, 2018 in the light of the

previous orders dated 24th August, 2015 and 7th September, 2015.

4. The Appellants ('Respondents' before the Tribunal) also filed C.A.

No. 511(PB)/2018 and C.A. No. 618(PB)/2018 for seeking directions

from this Tribunal to take certain urgent interim measures in the light

of the subsequent developments which was also disposed of on 3 rd

August, 2018. The said order was challenged before this Appellate

Tribunal which was disposed of vide order dated 28 th August, 2018.

5. Before the Tribunal, the Applicants ('Appellants' herein)

have asserted that grant of relief in their application is

i m p e r a t ive for a more mea ningf ul a nd pur posive i nter pr eta tion

Company Appeal (AT) No. 57 of 2019 3

of the orders passed by this Appellate Tribunal on 28 th August,

2018 & 17 th September, 2018. The reasons for filing the application

have been spelt out as noticed by the Tribunal and set out below: -

a. 'Sonepat Unit' has posted a loss of Rs. 6.63

crores for FY 2017-18.

b. Quarterly unaudited results for the quarter

ending 30.06.2018 'Sonepat Unit' - Loss of

Rs. 2.41 crores.

c. Overall financial condition of the

company has been severely impacted due to

heavy losses by 'Sonepat Unit'.

d. On instructions of the Board, Rs. 21.59

crores has been paid till 30.09.2O18 by

Sahibabad unit to avoid the account of the

company becoming NPA. Therefore

Sahibabad unit is facing a liquidity crunch.

e. The liabilities continue to mount on the

company and the company is liable to pay nearly

Rs. 32 crores to vendors due to the default of

'Sonepat unit'.

f. Owing to defaults of 'Sonepat Unit',

vendors have now restricted supply raw

materials to Sahibabad unit thereby causing a

serious situation as presently Sahibabad unit is

Company Appeal (AT) No. 57 of 2019 4

responsible for more than 90% of the total

production of the company.

g. The company has received over 80 legal

notices under the 'Negotiable Instruments

Act' on the cheques which were issued by

the Management Committee of 'Sonepat

Unit' and were returned dishonoured due to

insufficiency of funds. Some of these have

already culminated into legal cases and the

Directors of the company have been

summoned by various Courts. The liability

of these notices is to the tune of nearly Rs.

5.3 crores.

h. In the meanwhile the Respondent No. 1

company has received notices from NCLT,

Chandigarh in light of petitions being filed

under Section 9 of the Insolvency and

Bankruptcy Code by various suppliers/

vendors of 'Sonepat Unit'. The details of the

same are as follows:

i. 'M/s. Varun Auto Industries '

v. 'M/s. Atlas (Cycles)

Haryana Ltd.' being

C.P.(I.B.)No.175/Chd/Hry/2018:

Vide order dated 26.09.2018 the

Company Appeal (AT) No. 57 of 2019 5

Tribunal granted Atlas five weeks

time to file a reply and the

matter is fixed for arguments on

15.11.2018.

ii. M/s. Mahajan Tyre Company

v. M/s. Atlas (Cycles) Haryana

Ltd. being

C.P.(I.B.)No.240/Chd/Hry/2018

: Vide order dated 05.10.2018

the Tribunal granted Atlas five

six weeks time to file a reply and

the matter is fixed for arguments

on 13.12.2018.

iii. M/s. S u r i nd e r a Cycles v.

M / s . At l a s ( C y c le s ) Haryana

Ltd. being

C.P.(I.B.)No.261/Chd/Hry/2018

: Vide order dated 10.09.2018

the Tribunal issued notice on

the application filed by the

Operational Creditor and is fixed

for appearance on behalf of Atlas

on 14.12.2018.

iv. Avon Ispat - S. 8 IBC notice

received

Company Appeal (AT) No. 57 of 2019 6

v. Berger Paints - S. 8 IBC notice

received

i. Over a period of time, 'Sahibabad' and

'Sonepat Unit' have contributed a sum of

Rs.45.51 crores and Rs. 26.68 crores

respectively towards meeting outstanding

liabilities of 'Malanpur Unit', pursuant to

its closure under directions of the Board. A

communication dated 04.03.2018 was sent

to the Board by the CFO of the company

which clearly indicates that the net outflow

of funds from Sahibabad unit against such

contributions was Rs. 29.18 crores while

the net outflow of fund from 'Sonepat Unit'

towards the said contribution was only Rs.

8.25 crores.

6. The basis of the application was the resolution dated 10 th July,

2018 passed by the Board of Directors which resolved that "sanction

is hereby accorded for requesting the Consortium Bankers for release

of title documents of 'ASTI', 'Atlas Auto' and 'non -core assets' under

the charge of 'Sonepat Unit'". The list of assets in respect of which

release of title deeds is sought from the bank is as under:

i. 'Atlas Steel Tube Industries', Bawal

ii. 'Atlas Auto Industries', Rasol

Company Appeal (AT) No. 57 of 2019 7

7. Non-core assets of the company under the charge of 'Sonepat Unit'

was shown therein which includes 'Residential House', 'Bawal Factory',

'Rasoi Factory' and 'Bhind- Malanpur Factory', as detailed below:-

S/N PROPERTY'S ADDRESS AREA TYPE

1 Residential House 24-B, Model Town, 792 sq yard Sonepat

2 Residential House 102 L Sonepat 504 sq yard

3 Residential House 137-L, Model Town, 500 sq yard Sonepat

4 Residential House 110-L, Model Town, 590 sq yard Sonepat

5 Residential House 264, Model Town, 213 sq yard Sonepat

6 Residential House 216 HBC, Murthal 229.3 sq Road, SNP yard

7 Residential House A-7&8, Prem Nagar, 711.11 sq yard Sonepat

8 Residential House 115-116, Housing 573.75 sq Board Colony, Sonepat yard each flat

9 Residential House 58-L, Model Town, 564 Sonepat

10 Bawal Factory Plot No.1, Sector-V, Growth Central, Bawal - Rewari

11 Rasoi Factory Waka Village, - . Nathupur, GT Road, Sonepat

12 Bhind- Malanpur Plot No. 16-17, 21-22, Factory Industrial Area, Malanpur, Distt. Bhind

Company Appeal (AT) No. 57 of 2019 8

FURTHER RESOLVED that sanction is hereby

accorded for submission of an undertaking to the

Consortium Banks that pursuant to the release of title

deeds of ASTI, Atlas Auto and non-core assets under

the charge of Sonepat unit, a sum of Rs. 20 crores

from out of sale proceeds of ASTI shall be paid to the

Consortium Banks to reduce the exposure of the

company and the release of title deeds may be made

subject to such undertaking. Such proposal shall be

submitted under the signatures of Sb. I.D. Chugh,

Whole Time Director."

8. The Applicants ('Appellants' herein) plea before the Tribunal was

that the petitioners- non applicants ('Respondents' herein) could not

operationalize the 'Sonepat Unit' and production from the 'Sonepat

Unit' continues to be zero. It was further alleged that the petitioners

(1 st & 2 nd Respondents herein) have failed to furnish the requisite

information sought by the Board of Directors and no information has

been furnished regarding the outstanding liabilities to its suppliers.

The information is necessary to prepare the defence in the

proceedings initiated by 'Operational Creditors' under the 'Insolvency

and Bankruptcy Code, 2016' in NCLT, Chandigarh. The 'Sonepat Unit'

has not been able to clear its statutory liabilities later on liquidating

the outstanding liabilities of suppliers. The Board of Directors has

strongly felt that the only possible solution for the Respondent No. 1

company is to liquidate the non-core assets of the company so that

additional funds could be generated and be utilized to stabilize the

financial position which otherwise is getting adversely impacted. Company Appeal (AT) No. 57 of 2019 9

9. Non-applicants/Petitioners (1 st & 2 nd Respondents herein)

despite the opportunity granted, did not file any reply and their

counsel addressed the argument on the ground that the application is

not maintainable as the relief claimed has already been declined in

the earlier proceedings.

10. The Tribunal on hearing the parties observed and passed

following order:

"19. It was clarified that the order passed by this

Tribunal relating to continuity of the operations of the

orders dated 24.08.2015 & 07.09.2015 and

suspension of resolution dated 13.08.2015 and

the order of abeyance relating to resolution

dated 14.12.2017 & 24.02.2018 were to

continue till the final disposal of the company

petition. The Bench also clarified clause 3 to

observe that in default of making payment

within 30 days with regard to the cycles and

other parts, the interim order shall stand

vacated.

20. Dr. Chaudhary has rightly contended that

after passing the order on 28.08.2018 by the

Hon'ble Appellate Tribunal or clarifying the

same on 17.09.2018 not a penny has been

Company Appeal (AT) No. 57 of 2019 10

infused in the Sonepat unit to help and facilitate

it to achieve optimum level of production nor a

single cycle or parts from Sahibabad unit has

been entrusted to it for sale to service its own

territory. It is also evident that the issue like

Insolvency and Bankruptcy Code, 2016 and

apprehension of applicant- respondent No. 1

company facing the Corporate Insolvency

Resolution Process were also considered by this

Tribunal as well as by the Hon'ble Appellate

Tribunal. Moreover, in pursuance of order dated

12.10.2018 the non-core assets of Malanpur unit

is already in the process of being sold and the

sale proceeds are likely to be utilized for one

purpose or the other. It would not lie in the mouth

of the applicant- respondent No. 1 company that

they would not follow the direction issued by the

Hon'ble Appellate Tribunal by infusing funds in

the Sonepat unit and then to raise the bogie of

lack of funds and increasing liability of the

Sonepat unit. Likewise, no effort has been made

to supply the cycles or other parts manufactured

by Sahibabad unit to Sonepat unit in terms of

Company Appeal (AT) No. 57 of 2019 11

the order dated 28.08.2018/17.09.2018 passed

by the Hon'ble Appellate Tribunal. Despite this

Tribunal has shown indulgence to the parties to

argue the matter finally but the matter has been

got adjourned on one pretext or the other. In fact

applicant-respondents No. 1, 12, 14 to 16 have

jo ined h ands to d ef eat the d irections of the

Hon' ble Appellate T ribunal. By not inf using

f unds the applic an ts are pushing the

Sonepat Un it to penury and create a

situ ation to f ile an applic ation f or issuance

of direction. It is wholly unf air.Therefore, we

are not inclined to grant any interim relief at this

stage particularly when nothing has been placed

on record to show that the applicant-respondent

No. 1 company as such is unable to meet the

liability of the Operational Creditors who have

filed petitions under the Insolvency and

Bankruptcy Code, 2016.

21. Mr. R.S Sun, learned senior counsel

appearing for TDI Infratech Limited has

submitted that one property at item No. 11 of the

table may not be included as a part of the prayer

Company Appeal (AT) No. 57 of 2019 12

made in this application as TDI Infratech Limited

has acquired some interest in it. As we are

dismissing the application the request made by

Mr. Suri would not survive. We order

accordingly."

11. With the aforesaid observations, the application was dismissed

which is under challenge in this appeal.

12. For deciding the issue, it is desirable to notice the relevant

background of the case as narrated by the Appellant and detailed

below:

13. Late Rai Bahadur Janaki Dass Kapur had three sons, namely Sh.

Bishambar Dass Kapur, Sh. Jaidev Kapur and Sh. Jagdish Kapur. It

was considered expedient to split the management, ownership and

control of the companies and assets jointly owned by the family i n

three equal shares and award one share to each of the three

units/families which would thereby help in better management and

control, and further augment the business prospects of the

reconstituted units and business enterprises in the form of

'Memorandum of Understanding' dated 8 th January, 1999. The said

'Memorandum of Understanding' inter-alia provided that the assets of

the Kapur family will be divided into three baskets by the family, based

on the valuation of the Mr. K.N. Memani and the said valuation would

Company Appeal (AT) No. 57 of 2019 13

be final and binding on the parties. The said 'MOU' further stipulated

that in the event of any disputes and/or difference of opinion in any

manner, the same shall be referred to the arbitration of Justice A.M.

Ahmadi, former Chief Justice of India who was unanimously elected as

the Sole Arbitrator. Immediately after the demise of Sh. Bishambar

Dass Kapur in August 2000, some disputes arose between the family

members and the arbitration proceedings commenced.

14. On 31 st August, 2003, the Board of Directors of 'Atlas Cycles

(Haryana) Ltd.' keeping in view the adversarial litigation between the

Kapur family members, undertook restructuring of the controls and

constituted three Management Committees in respect of the three

manufacturing units, in a manner that each management committees

consisted of members from one family unit. In accordance with the

said resolution, the day to day management of the three units of Atlas

was entrusted to three management committees constituted in ter ms

of the said resolution. The Management committees were to have

autonomy of operations and were subject to overall supervision and

control by the Board of Directors. The Management Committee of

'Sonepat Unit' consisted of members from the of B.D. family Kapur

group (except for Mr. Arun Kapur and family) Management Committee

of 'Sahibabad Unit' consisted of members of Jaidev Kapur family

group and Management Committee of 'Malanpur Unit' consisted of

members of Jagdish Kapur family group.

Company Appeal (AT) No. 57 of 2019 14

15. Due to precarious financial position of 'Malanpur Unit' and

various other reasons, vide resolution dated 5 th October, 2014, the

Board of Directors resolved to close the unit and suspended all

manufacturing activity in the unit. The Board also directed that the

territories of 'Malanpur Unit' shall be divided equally and serviced by

the other two units i.e. 'Sonepat' and 'Sahibabad Unit'. It also resolved

that all the liabilities of 'Malanpur Unit' shall be met out of sale of

assets of 'Malanpur Unit'/ 'ASTI'/ 'Atlas Auto' and the deficit if any

shall be borne equally by 'Sonepat' and 'Sahibabad Unit'. It also

resolved that pending sale/ liquidation of assets of 'Malanpur Unit',

both 'Sonepat' and 'Sahibabad Unit' shall contribute a sum of Rs. 10

crores each to tide over the immediate liabilities which include

statutory dues and bank liabilities to prevent any situation of th e bank

account of the company turning 'NPA'.

16. The arbitration proceedings between the Kapur family members

culminated into an award dated 1 st November, 2014 passed by the

Hon'ble Sole Arbitrator. It is pertinent to mention that the Learned

Arbitrator, in contradiction to his previous orders, directed division of

the management, control and ownership of Appellant no. 1 Company.

17. After issuance of the arbitral award, 1 st to 3 rd Respondents

herein, filed C.S. (OS.) No.3510 of 2014 before the Hon'ble Delhi High

Court inter alia praying for a decree of permanent injunction

restraining the defendants from in any manner changing the

Management Committee of 'Sonepat Unit' and from interfering with the

Company Appeal (AT) No. 57 of 2019 15

management and control of the said Unit in light of the 'MOUs' dated

8 th January, 1999 and 31 st August, 2003 and the arbitral award dated

1 st November, 2014. A petition under Section 34 of the 'Arbitration and

Conciliation Act, 1996' was filed in January 2015 by some members of

the Kapur family against the Arbitral Award dated 1 st November, 2014,

being O.M.P. No. 30 of 2015 before the Hon'ble Delhi High Court.

18. Vide order dated 3 rd August, 2015, the Hon'ble Delhi High Court

partly allowed O.M.P. No.30 of 2015 and set aside the award of the

Arbitrator in so far as it related to 'Atlas Cycles (Haryana) Ltd.' and

public charitable Trusts. The Hon'ble High Court held that the

Arbitrator had no jurisdiction in the matters concerning Appellant No.1

or its Board. 1 st to 3 rd Respondents have filed an appeal against the

order dated 3 rd August, 2015 under Section 37 of the 'Arbitration and

Conciliation Act, 1996', being F.A.O. (OS.) No. 448/2015 and F.A.O.

(OS.) No. 459 of 2015 which is pending adjudication before the Hon'ble

Division Bench of the Delhi High Court. It is pertinent to mention that

no stay order was granted against the order dated 3 rd August, 2015."

19. It is informed that the application under Section 37 of the

'Arbitration & Conciliation Act, 1996' has also been dismissed.

20. Earlier with regard to the resolution dated 24 th February, 2018,

interim order of stay having passed by the Tribunal on 14 th March,

2018 and order was reserved in the Interlocutory Application. Number

of applications was filed by the Appellant Company and some of the

applications were filed by the 1 st & 2 nd Respondents/ Petitioners.

Company Appeal (AT) No. 57 of 2019 16

21. Vide order dated 3 rd August, 2018, the Tribunal directed in the

light of the order dared 2 nd August, 2018, it did not think fit to pass

any orders in C.A. No. 511 (PB)/ 2018 and C.A. No. 618 (PB)/ 2018

as the same showed that the Board of Appellant Company is trying to

grab the territories of the Management Committee of 'Sonepat Unit'.

22. Aggrieved by the said orders, the Appellants filed appeal before

this Appellate Tribunal being Company Appeal (AT) Nos. 260-262 of

2018. The said appeals were disposed of vide order dated 28 th August,

2018 with part modification of the order dated 2 nd August, 2018 passed

by Tribunal, Principal Bench. The said order was corrected vide order

dated 17 th September, 2018. Relevant portion of which reads as

follows:

"14. By the impugned order, the Tribunal has kept

certain resolution in abeyance and directed to

continue with the operation of the two orders dated

24th August, 2015 and 7th September, 2015. Two of

the resolutions of the Board of Directors dated 14 th

December, 2017 and 24th February, 2018 have been

kept in abeyance and the Board of Directors has been

directed to facilitate the 'Sonepat Unit' in production

to achieve the optimum level. The Applicant/Petitioner

No.1 (Respondent herein) has also been directed to

furnish all details sought by the Board of Directors of

the Company relating to fund flow from the

Government order and utilization thereof. Company Appeal (AT) No. 57 of 2019 17

15. Learned Senior Cousnel appearing on behalf of

the Appellants submits that if the Respondents are

allowed to sign the cheques, many of the cheques will

be bounced, as already bounced and it may result

into initiation of 'Corporate Insolvency Resolution

Process' against the Company.

16. Further, according to him, till the 'Sonepat Unit'

starts with its production to achieve optimum level,

the Company should be allowed to supply the

products such as cycles and its parts from other

units, which are producing in excess to their demand.

17. Though, the contesting Respondents have

taken plea that the Company has been divided into

three Companies but it is not in dispute that even now

the Company (1st Appellant) is only one. However, we

find that the Company has three units namely--

'Sonepat Limited', 'Malanpur Limited' and 'Sahibabad

Limited', which are under the administrative control of

one or other group of the same family, and have their

respective jurisdiction to sale products and they are

keeping separate accounts, unit wise.

18. The Memorandum of Understanding of the

years 1999 or 2003 has not been given full effect for Company Appeal (AT) No. 57 of 2019 18

last fifteen to eighteen years for dividing the

Company into three different Companies except the

administrative control, separation of jurisdiction for

sale of product and to keep separate accounts. For

the said reasons, no specific weightage can be given

to one or other unit except the interest of the Company

for passing order under Section 242(4). The impugned

order dated 2nd August, 2018 being in the interest of

the Company, no interference is called for. However,

in view of the submission made by the parties and in

the interest of the Company, we pass the following

order in addition to the impugned order passed by the

Tribunal.

i. The Board of Directors of the Company

while facilitating the 'Sonepat Unit' in

production to achieve optimum level may

infuse funds for 'Sonepat Unit' to the

extent it may require to achieve the

production to optimum level. If the

Company infuse any fund, it will be

entitled to get the amount back from the

'Sonepat Unit' which is under the control

of the contesting Respondents. In such

case, the contesting Respondents will

ensure that the amount infused by the Company Appeal (AT) No. 57 of 2019 19

Company in the 'Sonepat Unit' is

returned as per terms and conditions, if

any.

ii. The cheques on behalf of 'Sonepat Unit'

of the Company shall be signed by the

Authorised person/Director of the

'Sonepat Unit' along with one of the

authorised representative of the

Company. For the purpose of such

signature, the Company may either

authorise any of its representative

already posted in the 'Sonepat Unit' or

may post any of its representative to

ensure joint signatures on the cheque for

payment in favour of workmen,

employees, suppliers or raw materials,

other creditors, electricity charges, water

charges, tax etc.

iii. Till 'Sonepat Unit' achieve optimum level

of production, it will be open to the Board

of Directors of the Company to make

available the products, such as cycles

and other parts to 'Sonepat Unit' from

other units for meeting the demand and

supply in the market which is under the

Company Appeal (AT) No. 57 of 2019 20

control of 'Sonepat Unit'. 'Sonepat Unit',

in its turn, will keep an account of the

products, such as cycles and other parts

received from other units and after sale

of such products will report the same to

the Company as also the unit(s) from

which the products such as cycles and

its parts are supplied. The 'Sonepat Unit'

will not sell any product such as cycles

and its parts supplied by other units on

credit. The 'Sonepat Unit' will transfer

the amount generated from sale of

product of other units to the unit

concerned within 30 days of sale failing

which, in default the present order

passed by this Appellate Tribunal and

order passed by the National Company

Law Tribunal shall stand vacated.

iv. Appropriate adjustment in the books of

accounts should be maintained by the

'Sonepat Unit' with regard to products

received from other units and it will

communicate the month wise sale to the

Company and unit concerned.

Company Appeal (AT) No. 57 of 2019 21

v. The 'Sonepat Unit' and the contesting

Respondents who are in control of

'Sonepat Unit' will furnish all details as

may be sought for by the Board of

Directors of the Company relating to fund

flow from the Government order and

utilization thereof as has been ordered

by the Tribunal.

vi. It is needless to say that the rest part of

the order passed by the Tribunal relating

to continuity to the operation of the

orders dated 24th August, 2015 and 7th

September, 2015 and suspension of

resolution dated 13th August, 2015 and

the order of abeyance relating to

resolution dated 14th December, 2017

and 24th February, 2018 shall continue

till the final disposal of the Company

Petition.

The appeals stand disposed of with aforesaid

observations and directions."

23. Learned counsel appearing on behalf of the Appellant submitted

that the Tribunal has erroneously observed that no funds have been

infused in 'Sonepat Unit'. Firstly, in the order passed by this Appellate

Company Appeal (AT) No. 57 of 2019 22

Tribunal on 28 th August, 2018, the infusion of funds into 'Sonepat

Unit' was optional and not mandatory. Secondly, the infusion of funds

into 'Sonepat Unit' is possible only through sale of non-core assets as

the Appellant has no independent source of funds. At the instance of the

Board of Directors, the 'Sahibabad Unit' has already contributed a sum

of Rs. 32.62 Crores towards payment of outstanding liabilities of

'Sonepat Unit' between 1st December, 2017 to 31st March, 2019, out of

which, a sum of Rs. 8.92 Crores was contributed between 28 th August,

2018 to 31 st March, 2019 i.e. since the date of passing of the order

dated 28 th August, 2018 passed by this Appellate Tribunal in the earlier

appeals.

24. It is further submitted that the prayer for sale of non-core assets

acquires significance for more purposive interpretation of the directions

made by this Appellate Tribunal vide order dated 28th August, 2018.

25. It is submitted that the Tribunal erroneously observed that no

supplies were made to 'Sonepat Unit' in pursuance of the order dated 28 th

August, 2018. The Board passed a resolution dated 29 th August, 2018

directing the other unit to supply to 'Sonepat Unit'. However, the 1st

Respondent asked the bicycles to be supplied at Marginal Cost vide

communication dated 11 th September, 2018 contrary to the terms of the

order. An appropriate reply dated 12th September, 2018 was sent by the

Board of Directors and another communication dated 18th September,

2018 was sent by 'Sahibabad Unit' forwarding price lists, etc.

26. Therefore, according to the Appellant, the Tribunal erroneously

observed that no material has been placed on record to establish that the

Company Appeal (AT) No. 57 of 2019 23

Company has no funds. It is submitted that the Tribunal failed to take note

of the following facts:

a. Bank position as on 31st March, 2019.

i. Sanctioned limit - Rs. 19 crores

ii. Drawing power-- Rs. 18.54 crores

iii. Availed limits - Rs. 18.14 crores

b. All mutual funds exhausted except for a small art fund of Rs.

50 lakhs which is sub judice.

c. Payments to suppliers overdue, more than 60 days - Rs. 57

crores.

d. Position of funds as on 31 st December, 2018 can be seen from

the Letter dated 25 th January, 2019 sent by statutory

auditors stating that all mutual funds and other investments

have been redeemed by 'Sahibabad unit'.

27. Learned counsel for the Appellant submitted that the Tribunal

completely ignored the fact that A) all mutual funds and investments

available had already been liquidated; B) all bank limits were fully

exhausted; and C) no other funds available with the company to improve

the liquidity. Thus, the observation of the Tribunal that the financial

stringency was a bogey is ex facie erroneous.

28. It was submitted that the Tribunal noted the reasons and

justifications for sale of non-core assets in Para 5 of the impugned

Company Appeal (AT) No. 57 of 2019 24

order but none of the contentions raised by the Appellant and noted in

Para 5 have been dealt with in the impugned order. The Tribunal

completely erred in holding that since the non-core assets of 'Malanpur

Unit' are in the process of being sold, the sale proceeds are likely to be

utilized for one purpose or the other. The proposed utilization of the

funds to be generated through sale of the said asset has already been

placed on record.

29. It is submitted that the Appellant has provided proposed

utilization of the funds to be generated through sale of non-core assets

and sale of 'Bawal Land' and detail outstanding of the company as of

today to the vendors, as stated below:

"1. Proposed utilization of the funds to be generated through sale of non -core assets

Amount likely to be realized through the said sale of non- Rs.27crores core assets

Amount proposed to be paid to the consortium banks as Rs. 15 crores a precondition for obtaining the title deeds of the said non-core assets as the same are held by the banks as collateral security for the financial assistance extended to the company.

Payment of Rs. 15 crores to the consortium banks shall also scale down the utilized limit of the company and thus reduce the exposure of the company by Rs. 15 crores and thus reduce the liability of the company (pertaining to Sonepat unit).

Amount proposed to be utilized by the company towards Rs. 12 crores liquidation of liabilities to the vendors in a phased manner and statutory liabilities pertaining to Sonepat unit.

2. Sale of Bawal Land

The land in question was earlier utilized for 'Atlas Steel Tube Industries' which

was shut down in 2014 and was being managed by Management Committee of

Company Appeal (AT) No. 57 of 2019 25

'Malanpur Unit'. The permission for sale of the said asset was granted by the

Tribunal vide order dated 12 th August, 2018 in C.A. No. 842 (PB)/ 2018.

Proposed utilization of the sale proceeds

The amount likely to be realized through the sale of Rs.35.00 Cr said asset

Amount proposed to be paid to the Consortium Rs. 20.00 Cr bankers as a condition for release of the title deeds of the said property as the same are held by the banks as collateral security for the financial assistance extended to the company

Amount liable to be paid back to M/s. AGR Steel Rs. 13.00 Cr Strips Pvt. Ltd. towards refund of advance received by Atlas against proposed sale of said asset to M/s. AGR Steel Strips Pvt. Ltd. in 2012. AGR has a lien on the said property till the amount of advance alongwith interest is not refunded to AGR.

Brokerage Rs.0.82 Cr TDS Rs. 0.35Cr

Dues of HSIIDC, part refund to AGR Steel Strips and Rs. 2.00 Cr repayment of fixed deposits etc

The amount of Rs. 2 crores that was received as advance has already been

utilized for payment of dues of HSIIDC, part refund to AGR Steel Strips and

repayment of fixed deposits.

3. Total outstanding of the company as of today to the vendors is as under :

a. For supplies made to 'Sonepat Unit - About Rs. 25 crores

i. No. of vendors who have filed applications under IBC - 12

ii. Amount claimed by the vendors who have filed applications under IBC -

Rs. 10.39 crores

iii. No. of vendors who have filed complaints under 'Negotiable Instruments

Act' - 4

iv. Amount covered in complaints filed under 'Negotiable Instruments Act' -

About Rs. 80 lakhs

Company Appeal (AT) No. 57 of 2019 26

v. Salary, Wages, PF and other statutory liabilities pertaining to 'Sonepat

Unit' - Rs. 1.00 Crore (Approx.)

vi. Besides the legal proceedings pending under 'IBC' and 'NI Act', there are

various notices received under 'IBC', 'NI Act' and 'MSME Act' which have

still not culminated into legal proceedings and such proceedings maybe in

the pipeline. (Amount covered under such notices is in excess of Rs. 6

crores)

b. Sahibabad unit

Payments due to vendors is over Rs. 120 crores out of which payment that is

overdue beyond the 60 days normal credit period is Rs. 57 crores.

c. Malanpur unit

Payment due to vendors is around Rs. 10 crores."

30. According to counsel for the 1 st & 2nd Respondents, 'Atlas Cycle

(Haryana) Limited' is a closely held Company in the nature of a quasi-

partnership Company amongst the three groups of the Kapur family. The

'Atlas Cycles (Sonepat) Limited', 'Atlas Cycles (Malanpur) Limited' and 'Atlas

Cycles (Sahibabad) Limited' are wholly owned subsidiaries of Appellate No.1

Company. However, there is nothing on the record to suggest that 'Atlas

Cycle (Haryana) Limited' has any subsidiary company nor anything on the

record that company in the name of 'Atlas Cycles (Sonepat) Limited', 'Atlas

Cycles (Malanpur) Limited' and 'Atlas Cycles (Sahibabad) Limited' have been

registered under the Companies Act or treated to be a subsidiary of the

Appellant No.1 Company. The purpose of demerger of business pursuant to

the 'Memorandum of Understanding' has failed, as noticed in a preceding

paragraph. Pursuant to the 'Memorandum of Understanding', the Arbitration

Proceedings is initiated in which order of award was passed but was set

Company Appeal (AT) No. 57 of 2019 27

aside by the Hon'ble High Court and affirmed under Section 37 of the

'Arbitration & Conciliation Act, 1996'.

31. Therefore, the aforesaid plea taken by 1st & 2nd Respondents

('Petitioners' before the Tribunal) also cannot be accepted as they had not

filed any reply affidavit nor taken any plea that there are three separate

subsidiary Companies as discussed above. If there are three different

Companies, then Insolvency Proceeding will be initiated against one of them

such as 'Atlas Cycles (Sonepat) Limited'. However, for non-payment of dues

in absence of separate Companies, the Insolvency Proceeding will be initiated

against Appellant No.1 Company- 'Atlas Cycle (Haryana) Limited'.

32. The other plea taken by 1st & 2nd Respondents is that the Appellants

created obstacles and, therefore, the application was filed by 'Sonepat Unit'

against the Board Resolutions but from the record, we find that the

application under Sections 241-242 of the Companies Act, 2013 was filed

with prayer for demerger by 1st & 2nd Respondents in their individual

capacity (as petitioners) and not by so called 'Atlas Cycles (Sonepat) Limited'

or 'Sonepat Unit'.

33. The 1st & 2nd Respondents ('Petitioners' before the Tribunal) have

alleged obstacles created by Board of Directors, as detailed below:

(i) 'Malanpur Unit' of the Company was shut in 2014. Banks

recovered the liabilities of the 'Malanpur Unit' from the Bank

accounts of the 'Sonepat Unit' due to which the credit limits of the

'Sonepat Unit' were exhausted and the unit was left with no

Company Appeal (AT) No. 57 of 2019 28

working capital to run the operations of the unit smoothly. The

Sahibabad Unit serves all the territories of 'Malanpur Unit' and

takes all the profits despite the fact that 'Sonepat Unit' paid the

liabilities equally.

(ii) The Board of Directors has time and again passed Board

Resolutions and has suspended the financial powers of

the 'Sonepat Unit'. Vide Board Resolutions dated 6th April, 2015,

13th August, 2015, 14th December, 2017 and 24th February, 2018,

the Board of Directors suspended the financial powers of the

'Sonepat Unit' against the Order dated 7th September, 2015, vide

which the erstwhile Company Law Board suspended the Board

Resolution till the final hearing of the Petition.

(iii) The 'Sonepat Unit' is shut since March, 2018 because of the

Board Resolutions passed by the Board of Directors. The Unit was

flourishing and had successfully completed tenders received from

the Government of Gujarat to supply 1,25,000 cycles worth Rs. 32

Crores and another tender of 1,13,000 cycles of Rs. 32 Crores from

the Government of Rajasthan in the year 2017-2018.

(iv) In 2016, the 'Sonepat Unit' applied to Consortium Banks to

revise the limits which were approved by the

Banks. 'Sonepat Unit' requested the Board of Directors to pass

board Resolution approval of sanction of the revised limits by the

Banks.

Company Appeal (AT) No. 57 of 2019 29

(v) However, the Board of Directors refused and instead wrote a

letter dated 8th June, 2016 to the bankers, withdrawing the loan

applications of the 'Sonepat Unit' to choke the financial working of

the 'Sonepat Unit'. Furthermore, Board of Directors allowed

'Sahibabad Unit' to avail short term loan of 20 crores against its

non-core assets but refused to allow 'Sonepat' to avail the same.

Letters written to Board of Directors to avail bridge loan of Rs. 15

Crores but to no avail.

34. The Respondents have further taken plea that the Company Petition is

pending before the Tribunal, Principal Bench and the matter is listed for

hearing. The Company Petition will become infructuous if the Appellants are

allowed to sell non-core assets of the 'Sonepat Unit'.

35. It is submitted that the 'Sonepat Unit' is seeking for a demerger of the

Unit as per the 'Memorandum of Understanding' and 'Board Resolutions'.

Non- Core Assets of the 'Sonepat Unit' are the only assets of the Unit. The

Board of Directors was permitted to sell only the 'Bawal Unit' and the sale

proceeds were to be infused in the 'Sonepat Unit' so that the Unit starts

manufacturing again and further to repay the 'Operational Creditors'. The

Board of Directors instead of infusing the said funds in the 'Sonepat Unit'

and or repaying Rs. 11 Crores to the 'Operational Creditors' have changed

their stand before this Appellate Tribunal.

36. It is accepted that 'AGR Steel Strips Pvt Ltd.' had only advanced Rs.

6.37 crores to the Company in 2012. Since it is outstanding since the year

Company Appeal (AT) No. 57 of 2019 30

2012 and there is no urgency to pay the same and the Board of Directors

should prioritise in repaying the funds due under IBC.

37. It is stated that Non- Core Assets of the 'Sonepat Unit' includes

properties which have already been sold to the Trusts of the 'Sonepat Unit',

and the payments have been received by the Board of Directors and the

matter is currently pending before the Hon'ble Delhi High Court. It is

informed that the Board of Directors have not approached the Banks for sale

of Non- core assets and no condition has been imposed by the Bank to

adjust Rs. 15 Crores as the Tribunal dismissed the application for sale of

Non- Core assets.

38. 1st & 2nd Respondents have shown another option and taken plea that

instead of paying to 'AGR Steel Strips Pvt. Ltd.' shall utilise the sale proceeds

from 'Bawal' to repay Rs. 11 Crores to the 'Operational Creditors' under 'I&B

Code'. It is further stated that 4th Respondent made some unauthorised

withdrawals of appox. Rs. 15 Crores in his name in the year 2012-2013.

39. However, we are not inclined to decide the aforesaid question of

withdrawal of any amount of one or other person and it is not possible for

this Appellate Tribunal, at this stage, to decide the amount of sale proceeds

from 'Bawal' should be utilized for payment to the 'Operational Creditors' or

to 'AGR Steel Strips Pvt. Ltd.'.

40. 1st & 2nd Respondents ('Appellants' herein) have not denied the fact

that the 'Financial Creditors' and the 'Operational Creditors' have already

moved for 'Corporate Insolvency Resolution Process' against 'Atlas Cycle

Company Appeal (AT) No. 57 of 2019 31

(Haryana) Limited' and not against 'Atlas Cycles (Sonepat) Limited' for dues

payable by 'Sonepat Unit' to the 'Operational Creditors'. If the 'Corporate

Insolvency Resolution Process' once admitted, the Board of Directors will be

suspended and in that case not only the Appellant No.1 Company will suffer

but all the members including 1st & 2nd Respondents and in such case, the

Company Petition (preferred by 1st & 2nd Respondents) will become

infructuous.

41. In a petition under Sections 241-242 of the Companies Act, 2013

(earlier Sections 397-398 of the Companies Act, 1956), the Tribunal has

power to pass interim order in terms of sub-section (4) of Section 242, which

reads as follows:

"242. Powers of Tribunal. ─........(4) The Tribunal may,

on the application of any party to the proceeding, make

any interim order which it thinks fit for regulating the

conduct of the company's affairs upon such terms and

conditions as appear to it to be just and equitable."

42. From the aforesaid provision, it is clear that the Tribunal can

make any interim order which it thinks fit for regulating the conduct

of the company's affairs upon such terms and conditions as

appear to it to be just and equitable.

43. It is the wisdom of the Board of Directors to decide whether sale

of non-core assets ought to be made or not. It was the duty of the

Tribunal to notice that impending threat of an 'I&B Code' petition

being admitted against the Company cannot be undermined. It is not Company Appeal (AT) No. 57 of 2019 32

in dispute that there are more than ten 'I&B Code' petition s in which

the company has received notice and all petitions (except one) pertain

to the liabilities of 'Sonepat Unit' qua vendors. Interest of more than

12,000 shareholders is at stake and a perfectly solvent company

having the distinction of a market leader may be pushed to insolvency

due to a baseless dispute created by one promoter group.

44. If the Board of Directors on perusal of the record finds that

there is no money payable or receivable to pay to the 'Operational

Creditors'/ 'Financial Creditors' to save it from initiation of the

'Corporate Insolvency Resolution Process', the Tribunal or this

Appellate Tribunal cannot go into commercial wisdom and financial

matrix of the Company to decide whether a particular asset or one or

other asset is required to be sold to satisfy the liabili ties of the

company ('Atlas Cycle (Haryana) Limited') including the liabilities of

'Sonepat Unit' qua vendors. If the salvation for the company is improving

liquidity through sale of non-performing assets of the company including the

non-core assets that were proposed to be sold and servicing the territory, it

is not open for the Tribunal or this Appellate Tribunal to prohibit the

company from taking such decision i.e. from initiation of 'Corporate

Insolvency Resolution Process'.

45. From bare perusal of Section 241 if read with Section 242 of the

Companies Act, 2013, it will be clear that on an application made under

Section 241, if the Tribunal is of the opinion that company's affairs have

been or are being conducted in a manner prejudicial to the interest of the

company and that to wind up the company would unfairly prejudice

such member or members, but that otherwise the facts would justify the

Company Appeal (AT) No. 57 of 2019 33

making of a winding-up order on the ground that it was just and equitable

that the company should be wound-up, in such case, the Tribunal may, with

a view to bringing to an end the matters complained of, make such order as

it thinks fit.

46. The purpose of Section 241 read with Section 242 of the Companies

Act, 2013 is to save the company from winding up even if the company's

affairs have been or are being conducted in a manner prejudicial or

oppressive to any member or members or prejudicial to public interest. The

essence of Sections 241 & 242 will be defeated if during the pendency of the

petition, the 'Operational Creditors' or 'Financial Creditors' are allowed to

trigger 'Corporate Insolvency Resolution Process' itself. The Tribunal while

dealing with the matter failed to notice the aforesaid fact. We are of the view

that it is a fit case in which the Board of Directors should be allowed to take

its own decision as to how it will meet its end for meeting the liabilities of the

'Operational Creditors' / 'Financial Creditors' and whether the liability is of

one or other unit including 'Sonepat Unit' and we, accordingly, allow the

Board of Directors to take such decision to save the company from initiation

of the 'Corporate Insolvency Resolution Process' and not for other purpose.

47. In the result, the impugned order dated 14th February, 2019 is set

aside. The appeal is allowed with aforesaid liberty. However, if the amount is

utilized for any other purpose than meeting the liability of the 'Operational

Creditors' / 'Financial Creditors' or for revival of the 'Sonepat Unit', it will be

open to 1st & 2nd Respondents to bring the aforesaid fact to the notice of this

Appellate Tribunal for appropriate order.

Company Appeal (AT) No. 57 of 2019 34

The appeal is allowed with aforesaid observations. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial)

NEW DELHI

2nd July, 2019

AR

Company Appeal (AT) No. 57 of 2019